FCA’s Bailey warns on property fire sales

Andrew Bailey FCA PRA Bank of EnglandFCA’s boss Andrew Bailey has warned the likelihood of a fire sale of properties is one of the regulator’s top concerns for both investors and the economy following the recent fund suspensions.

Speaking at the regulator’s annual public meeting, Bailey said: “[After the funds suspensions] we were very concerned about two things in terms of investors and consumers.

“First of all, we couldn’t have a process where there was detriment because if you got to the door first you got a different value to the people who didn’t.

“And the second thing from the point of view of both the funds, investors and broader economy was avoiding the fire sale of property to meet these demands very suddenly.

“You have got to allow properties to be sold at some point but what we do not want is an immediate fire sale of properties. Putting my FPC hat on, that is one of the things we warned about. That is the objective.”

Property fund giants with assets of over £18bn have moved to stem the outflows sparked by fears over falling property values in the wake of the Brexit vote.

Standard Life Investments, M&G, Columbia Threadneedle, Aberdeen Asset Management, Henderson and Aviva Investors are among those who have imposed temporary “gates” on exiting investors.

As a result, the FCA and the Bank of England are examining ways to restructure property funds to prevent market panic.

The regulator has also asked fund managers to consult the regulator before deciding to stop trading in their funds, to properly guide investors on what to do when these events occur as well as giving them enough time to seek appropriate advice.

Bailey says:“We issued guidance a week ago on the [property funds]. That guidance was designed to assist the funds and give them a steer from our point of view about how they should think about lifting suspensions. That is a delicate balance. It is the balancing act between minimising the length of time of suspension and having an orderly process in terms of running the markets.”

He also says despite the commercial property funds fallout has now “calmed down”, the FCA will remain on the alert.

Bailey says: “We are watching it very carefully. The suspension mechanism did its job. That is the safety valve because otherwise you have got this problem of daily redemptions of an illiquid asset. The valuation issue is at the core of this. You can have a lot of liquidity in the fund but if you can’t value the assets you can’t redeem because you can’t determine you are treating one set of investors who are leaving fairly relative to another set of investors who are not leaving or choose to leave later.

“It has calmed down but we will go on watching it. Some funds have chosen slightly different approaches to coming out of the process to others. We will, as a policy issue, step back and say what have we learned from all of this.”